A Free-Market Energy Blog

On Sustainable Energy (Part II)

By Robert Bradley Jr. -- January 10, 2012

Minerals cannot be synthetically reproduced in human time frames. But in the world of human action, neither crude oil, nor natural gas, nor coal exists in one, total, known form to start a depletion clock.

Erich Zimmermann warned against the fallacy of importing the physical science concept of fixity to the real-world process of mineral development. “If petroleum resources were in their entirety available from the beginning and could not increase but only decrease through use, it might be correct to advocate ‘sparing use so as to delay inevitable exhaustion’,” he explained.

But if petroleum resources are dynamic entities that are unfolded only gradually in response to human efforts and cultural impacts, it would seem that the living might do more for posterity by creating a climate in which these resource-making forces thrive and, thriving, permit the full unfolding of petroleum reserves than by urging premature restraint in use long before the resources have been fully developed.

Human ingenuity in market settings explains why age-old predictions of energy famine have failed to come to pass. Joining dire forecasts of prior decades, the chief geologist of the United States Geological Service stated in 1919: “The peak of [U.S.] production will soon be passed—possibly within three years.”

Erich Zimmermann, whose functional theory of resources pointed to open-ended resource development, waxed pessimistic when comparing the alternatives to coal: “Oil and natural gas are forging ahead rapidly, but because their total reserves are much smaller than those of coal they are bound to lose in relative importance in the not too distant future.” [1]

Energy czar James Schlesinger, the first secretary of the Department of Energy, created in 1977 legislation signed by President Jimmy Carter, similarly warned about “a classic Malthusian case of exponential growth against a finite source.”

Schlesinger quantified the supply problem as follows:

Since World War II, we have had a phenomenal rate of malusage so that in each decade—the ’50s and the ’60s—the world consumed more than had been used up in all previous human history. Oil production should peak out around the world in the early 1990s. The world, which is now consuming about 60 million bbl. a day, faces a limit on production somewhere around 75 million or 80 million bbl. a day. That means in five years’ time we may have chewed up most of the possibility of further expansion of oil production.

World oil production reached and then exceeded Schlesinger’s maximum range in 1997 and 2004, respectively. Supply today is limited by demand, not a physical limitation on production. Higher prices from higher demand, in other words, would elicit greater petroleum production not only from crude oil but also from the heavier oils that can be expected to gain market share within the hydrocarbon family.

Stobaugh and Yergin: Wrong Too

The exaggerated demise of carbon-based energies has been joined by errant predictions of the growing market share of renewables. “The range of energy possibilities grouped under the heading ‘solar’ could meet one-fifth of U.S. energy needs within two decades,” wrote Robert Stobaugh and Daniel Yergin in 1979.

Compared to about 8 percent at the time of their prediction, the year-2000 actual was less than 9 percent versus the predicted 20 percent. In 2009—and only because of massive government subsidy for nonhydro renewables—the percentage was still less than 11 percent. The carbon-based energy age has not waned.

The increasing sustainability of conventional energy in market settings does not mean that market-based energy is problem-free. Worst-case events—such as coal-mine accidents, major oil spills, or pipeline explosions—occur. Such setbacks are part of an industrial society in which operations are not perfect. But improvement can be expected. In fact, such problems advance sustainability over the longer term by allowing learning and inspiring reform. Problems are not ends in themselves but part of the improvement process, as Julian Simon has explained.

Available resources, particularly those that are owned and controlled by government, reflect a political and cultural, not only physical/scientific, dimension. “Laws, political attitudes, and government policies, along with basic geological and geographical facts,” stated Zimmermann, “become the strategic factors in determining which oil fields will be converted by foreign capital from useless ‘neutral stuff’ into the most coveted resource of modern times.” [1]

And so it is with natural gas and coal deposits. Because such factors have more often than not discouraged development, supply is being transferred from the present to the future. Less energy now from government intervention may misleadingly promote peak mineral fears, but it also sets the stage for when human ingenuity is properly incited.

4 Comments

If, as you say, the idea of depleting oil, gas, coal or other minerals is a fiction, then why is there a tax deduction or allowance for depletion? Of all the anti-fossil fuel organizations’ list of “oil company subsidies”, this is the only one that I would agree with, perhaps because no one has been able to explain it to me. API’s fact sheet describes the percentage depletion allowance as “a cost recovery method that allows taxpayers to recover their lease investment in a mineral interest through a percentage of gross income from a well.” Huh? Taxpayers to recover their lease investment? I realize that this “allowance” applies to many other industries, and limited to independent producers, but does it make sense? If so, why?

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